The 3 Most Common Financial Strategies Creative Businesses Use to Achieve Greater Profitability

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Creative businesses face unique challenges when it comes to managing their finances. However, by deploying the right financial strategies, creative businesses can achieve greater profitability and long-term success. In this article, we discuss the three financial strategies that creative businesses use to achieve greater profitability.

  1. Monitor Your Cash Flow

Cash flow is the lifeblood of any business, and creative businesses are no exception. Managing cash flow is essential to ensuring that your business has enough cash to pay your bills and invest in growth opportunities. Cash flow management also helps you identify potential cash shortages before they become a problem.

To monitor your cash flow effectively, you should regularly review your cash flow statement, which shows the flow of cash in and out of your business. You can use this information to identify trends and make informed decisions about managing your cash.

  1. Set Profit Targets

Profit targets are specific goals that you set for your business to achieve. By setting profit targets, you can focus on achieving specific financial outcomes, such as increasing revenue or reducing expenses. Profit targets can also help you measure your progress and identify areas for improvement.

To set profit targets, you should start by reviewing your financial statements and identifying areas where you can improve profitability. You can then set specific, measurable goals and develop a plan to achieve them.

  1. Manage Your Expenses

Managing expenses is crucial for creative businesses who want to achieve greater profitability. By keeping your expenses under control, you can improve your profit margins and invest in growth opportunities.

To manage your expenses effectively, you should review your expenses regularly and identify areas where you can reduce costs. For example, you may be able to negotiate better rates with suppliers or reduce your overhead costs by working remotely.

You can also consider implementing cost-saving measures, such as implementing energy-efficient practices, reducing travel expenses, or outsourcing non-core activities.

In summary, creative businesses can achieve greater profitability by deploying financial strategies that focus on managing cash flow, setting profit targets, and managing expenses. By following these strategies, you can improve your financial performance and achieve long-term success.

New VAT Late Submission, Late Payment Penalties and Interest Charges

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As part of HMRC’s ambition to become a modern, trusted tax authority, it is changing the way penalties are issued for submitting late VAT returns and paying VAT late, which will affect all VAT registered businesses from 1 January 2023.

For  VAT periods starting on or after 1 January 2023, HMRC is replacing the default surcharge with separate penalties for late returns and late payment of VAT.  At the same time, HMRC is introducing a new approach to VAT interest.​

If you submit your VAT return late

Late submission penalties will work on a points-based system. For each VAT Return you submit late you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency.

Submission frequency Penalty points threshold Period of compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

You will be able to reset your points back to zero if you:

  • submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
  • make sure all outstanding returns due for the previous 24 months have been received by HMRC

The new points–based system for late submissions is designed to be more lenient for the occasional slip–up, whilst still penalising those who repeatedly fail to comply. Late payment penalties will be charged at different rates based on when payment is received. This means the penalty is more proportionate to the length of time a payment is outstanding – the sooner you pay, the lower the penalty.​

HMRC is also introducing late payment interest, which means that you’ll be charged interest from the date your payment is overdue, until the date you pay in full. HMRC is discontinuing repayment supplement and instead will be introducing repayment interest. Customers who make a repayment claim will be paid repayment interest from the day after the due date, or the date of the submission (whichever is later), to the date the repayment is made.

By introducing these changes, HMRC is aiming to incentivise businesses to file their returns on time and pay their VAT on time. This will make it easier for businesses to understand their obligations and help to ensure that HMRC continues to be a modern, trusted tax authority.

For more information, see the HMRC guidance on how to prepare for upcoming changes to VAT penalties and VAT interest charges.

Speak to us if you need help preparting and submissing your VAT returns on time. Our experienced bookkeeping team will be happy to help.

Xero Efficiency Tips

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Xero is a cloud-based accounting software designed to help businesses manage their finances more efficiently. The software is user-friendly and offers a wide range of features making it easy for businesses to track their income and expenses, create invoices, manage inventory, and generate reports.

One of the key benefits of using Xero is its ability to save time and reduce the amount of manual work involved in managing finances. With Xero, businesses can automate many of the tedious and time-consuming tasks associated with accounting, such as reconciling bank accounts and generating reports. This allows businesses to focus on more important tasks, such as growing their business and serving their customers.

Another benefit of using Xero is its ability to provide real-time financial information. With Xero, businesses can access their financial data in real-time, which allows them to make informed decisions about their finances and ensure that they are on track to meet their goals. This real-time information can also be shared with other members of the business, such as accountants and investors, which can help to improve collaboration and communication within the organization.

Xero also offers a range of tools and resources that can help businesses to improve their efficiency. For example, the software includes features such as the ability to track inventory, create purchase orders, and manage bills and expenses. This allows businesses to easily manage their finances and stay organized, which can help to reduce errors and improve overall efficiency.

In addition to these features, Xero also offers a range of integrations with other popular business tools and software. This allows businesses to connect Xero with other systems and platforms, such as point-of-sale systems and ecommerce platforms, which can help to improve the overall efficiency of their operations. For example, businesses can use Xero to automatically import their sales data from an ecommerce platform, which can save time and reduce the risk of errors.

 

In summary, there are several ways to use Xero more efficiently and effectively, including the following tips:

  1. Import your bank statements directly into Xero to save time and avoid errors.
  2. Use Xero’s mobile app to manage your finances on the go.
  3. Use Xero’s built-in reports to get a clear picture of your business’s financial health.
  4. Set up automatic reminders for invoices and bills to avoid late payments.
  5. Use Xero’s collaboration tools to work with your accountant or bookkeeper in real-time.
  6. Take advantage of Xero’s integrations with other business tools, such as online payment systems and inventory management software.

In addition to the tips mentioned earlier, there are several other ways to use Xero more efficiently:

  1. Use Xero’s recurring invoices feature to automatically generate and send invoices on a regular schedule.
  2. Use Xero’s multi-currency support to manage transactions in multiple currencies.
  3. Use Xero’s project tracking feature to track time and expenses for specific projects.
  4. Use Xero’s inventory management tools to track stock levels and generate purchase orders.
  5. Use Xero’s payment gateway integration to accept online payments directly from invoices.

Overall, Xero is a powerful and efficient tool for businesses looking to manage their finances more effectively. The software’s user-friendly interface, real-time financial information, and range of features and integrations make it easy for businesses to save time and improve their efficiency. By using Xero, businesses can focus on growing their business and serving their customers, rather than spending time on tedious and time-consuming accounting tasks.

Talk to our experienced bookkeeping team if you want to explore Xero and it’s additional features for your business or would like someone to help you with keeping your accounts updated and relevant.

Business Finance Options

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Throughout the cycle of a business, there is often a need for some additional cashflow to support business growth. Ever assumed that only struggling businesses need extra finance? Securing cashflow finance for your business can actually mean the opposite.

Business Loans can be used to fund the growth and expansion of a business, the purchase of a new premises, additional stock, recruitment or simply to provide some extra funds in the bank to offer some peace of mind.

What different types of business loans are available?

The most common types of business finance are Business Loans, Invoice Finance, Asset Finance and Property Finance. There are also many other alternative finance options such as Revolving Credit Facilities, VAT Loans and Merchant Cash Advance.

Why would a business need finance?

There are lots of reasons a business may choose to source additional funding. Here are some examples of how the different products work, and the benefits to the business:

  • Business Loans – often used for cashflow, expansion and growth. This loan would be a fixed amount over a fixed term, and many lenders don’t charge an early repayment fee if the loan amount is settled prior to the end of the term.
  • Invoice Finance – a way to improve cashflow when you have 30/60/90 day invoice terms. For example, a construction firm who has to pay out for materials and labour before their client clears the invoice, which heavily impacts cashflow. With Invoice Finance, the construction firm could borrow up to 90% of the invoice amount in advance, automatically paying the balance back when their client pays their invoice.
  • Property Finance – covers a variety of products including Commercial Mortgages, Bridging Loans and Development Loans. A property developer looking to fund their next project could utilise property finance to purchase the property or land and cover all projected costs.
  • Asset Finance – a facility which allows businesses to purchase new assets, including vehicles, plant, machinery and hardware, without using cash from their bank. You can spread the cost of the asset over a fixed term with a fixed interest rate.
  • Revolving Credit Facility – works in a similar way to an overdraft and allows you to withdraw, repay and withdraw again, whenever your business needs a cashflow injection. You only pay interest on what you use of the facility. A flexible solution which grows with your business.
  • Merchant Cash Advance – an additional financing solution for businesses such as retail, leisure or hospitality who take payments via a card terminal. You can borrow against forecasted revenue and pay back using the transactions taken, either in person or online.
  • VAT Loans – a type of borrowing specifically to spread the cost of an unexpected VAT bill. A VAT Loan can be arranged prior to the VAT being due, or can be put in place shortly after the VAT has been paid, helping to maintain cashflow within the business.

How does a business owner know if they are eligible to apply for a business loan and how much could they borrow?

A businesses eligibility is based on lots of factors including company trading history, the directors’ personal circumstances and company financials. A business would typically need a minimum of 3 months trading history, but the longer you’ve been trading and the more evidence you can provide of your affordability, the more attractive your business becomes to a lender which is then reflected in the rates, amount and term offered.

How can a company apply for a business loan?

The first place a business will usually go for a loan is their bank. The risk appetite of a bank is low, so applications can be rejected unless the business is extremely favourable. If your bank says no, you can then approach an alternative lender directly, or via a finance broker. A broker will use their experience to match you with the most suitable finance product, and as they generally work with a large panel of lenders, they have lots of options to choose from.

How does a business owner know what type of business loan is right for them?

There are so many different products in the market, so it’s hard to know where to start. Having a conversation with your bank or a finance broker is a great starting point so they can understand your requirements, and suggest some options that suit your needs and that you would be eligible for.

Where would a start-up business look for funding?

If you are a start-up or have been trading for less than 3 years, you may be eligible for a British Business Bank loan, which are backed by the government. You can apply online at www.startuploans.co.uk and they will assess your application along with your business plan, cashflow forecasts and directors experience in order to make a decision. You may also be able to raise funds via private investors or crowd funding, and your Local Enterprise Partnership should be able to offer advice on any grants and funding that you may be eligible for within your local business community.

When is the right time to start thinking about business finance?

Often business owners only start to think about business finance when they need it, by this time your eligibility may have suffered, or there may be limited options available to you. By forecasting your cashflow for the year ahead, you may be able to identify any opportunities that may require additional funding, for example an upcoming VAT bill, dips in revenue due to seasonal trading or planned expansion costs. By applying when your finances are healthy, you are ensuring you have as many options available to you as possible, on the best terms.

 

Grange Business Finance are an FCA approved commercial finance brokerage based in Suffolk, sourcing cashflow solutions for your business. For more information on their services, visit www.grangebusinessfinance.co.uk.

 

3 Fail-Safe Business Growth Ideas

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There isn’t a small to medium sized business that isn’t looking to manageably scale and grow their business. Yet growing a business can be difficult for many companies. If nothing else, attempting to work on the business whilst you’re working in it, is exhausting. However, we have three fail-safe ideas which we always tell our clients to follow if they want to start making meaningful differences in growing their company.

Simple Business Growth Ideas for SMEs

 

  1. Put Your Prices Up!

The majority of clients rarely think to put their prices up, or worse — feel like they can’t. However, everyone else is putting their prices up; so of course, you must also. Price is often tied up with concern over a. worth or b. demand. The truth is, if people want your product or service, they will pay for it. If you are competitive and professional, why shouldn’t you expect to charge the correct price?

Undervaluing and underselling a product or service is not only detrimental to our mental states as we start to believe our worth is akin to the charge amount, but also terrible for our industries. Repeatedly I witness horrifically low hourly rates on agency sites. Not only are these personally unsustainable, but it devalues the sector as a whole. At some point, the people who are initially selling their work for such low rates have to put their costs up to survive, then guess what? Clients will look for the cheaper option – pushing these guys out of the sector as they can no longer afford to remain with these sorts of clients. Very simply, cost your work properly and charge what is required to offer a first-class service or product, the right people or companies will pay for the best. It is these clients or customers you should be looking to align your company alongside.

How to easily raise your prices

Try answering these questions:

  • Are you charging enough?
  • How do you measure your profit margin on each sale you make?
  • What does a 5% increase in sale price do to your profit margin?

Now try two simple exercises:

  • Look at all your services and simply add £50 to them. What does that increase look like? What difference does that make?
  • Now consider your clients: if you have 10 clients bringing in £1,000 per month each, put £50 on each (5% increase). What would £500 extra per month mean to you? See how much more you can earn by adding a slightly greater increase.
  1. Sort out your sales and marketing!

Yup, if no one knows you exist how do you expect to sell anything? Marketing is essential for bringing in new leads to convert into clients or customers.

Have you ever considered how many new clients or customers you actually need to earn the money you’re looking to achieve?

Marketing consultant and founder of Sasa.Marketing, Cat Bowyer, offers three genuinely helpful pieces of advice to companies looking to get better noticed:

A. Do you really know who your customer is?

  • Do you know their motives?
  • What are their communication channels?
  • What concerns do they have?
  • What size are their budgets?

Understanding your customer will ensure you’re investing your marketing spend in the right places.

B. Make sure your marketing objectives reflect your business objectives. Are you looking to achieve growth through new customers, or growth through increased sales per customer? What about your profit margin and sales relationship? Do you have a high margin and low sales or a low margin but high sales?

C. Websites and social media content are great, but you still need to let people know you’re online. Otherwise it’s like having a box of leaflets under the desk. Make sure there’s a mix of campaign and brand awareness activity.

From a bookkeeper’s perspective we look at the figures involved in marketing from a time and value ratio.

  • Do you know your conversion rates? (The conversion rate is the percentage of new leads who take a desired action and become paying customer.)
  • How many leads do you need to generate, so they eventually convert into the desired number of clients or customers?

For example, conversion rate of new leads to paying customers is 5% and you would love to gain two new clients in a month. How many leads do you need to generate? The answer is 40 new leads, which at 5% conversion rate will secure you two new clients.

Marketing is a numbers game! The more people you attract, the more customers or clients you’ll retain! The greater your marketing efforts, the greater your gain.

  1. Capacity

To improve capacity, it is essential your organisation runs efficiently. Rather than taking on more costly staff members, place in better systems and processes that actually work to reduce labour time in all departments.

  • Train your current work force with your new systemisation to effectively utilise your current team, before looking to employ more staff to cope with an increase in demand.
  • To systemise your organisation, you will need a plan. It’s essential you understand your figures and have a visualisation of the profit you require to achieve the kind of growth you’re looking to make. If the figures and goals aren’t attainable or tangible, how do you expect to get great results?
  • To get an idea of how to create a financial model and plan that will work for you, read our article: Financial Clarity – How To Sleep At Night.

 

Business growth doesn’t have to be confusing:

  1. Create a plan
  2. Put your prices up
  3. Market yourself
  4. Improve your efficiency.

However, if you want to chat through these ideas or look at figures you can achieve with a professional bookkeeper, get in touch! Call 01206 700 252 or email hello@clouditbookkeeping.co.uk

How To Save For Tax Payments

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In 1716 Christopher Bullock wrote in his comedy play The Cobbler of Preston, “Tis impossible to be sure of anything but Death and Taxes”. Whilst tricky to argue with, it’s not a terribly inspiring thought!

If we’re honest, the death part is not really in our realm of services. But understanding tax and making it less scary, is definitely where we help businesses!

To get on top of tax payments there is only one simple trick you need to know: plan and save!

I know, you’re thinking that’s easier said than done, and of course it is! If it was so super simple, nobody would ever find themselves worrying about how to pay their next tax bill.

However, all is not lost! This article explains the simple steps you can take to easily save and pay your tax bills, keep on top of your ins and outs, and maybe if you’re lucky — have some money left in reserves to put towards your dividends!

Cloudit Bookkeeping’s simple steps to saving for tax

  1. How much will you pay in tax?

Before beginning to work out how much you can save, you first need to establish how much you estimate to pay in tax each year.  This depends entirely on your business structure: are you self-employed (sole trader or partner in a partnership), or is your company limited? Limited companies have to pay what is called corporation tax. This is charged at a flat rate percentage (check the percentage applicable in that year, but in 2021-2022 this is 19%) on taxable profits. If you’re self-employed things get a little more complicated as there are various different tax rates which kick in at different tiers, plus national insurance and student loan repayments.

Limited companies

If your company is limited, you’ll need to pay your tax bill nine months and one day after your year end. Corporation tax must be paid on both your company’s profits and on any gains you made from selling assets that increased in value.

If you’re keeping your accounts up to date, it’s most likely you have a rough idea of how much net income you earn each month. You’ll be paying set percentage on your profits — the money you make in that accounting period, minus overheads and allowable expenses. It’s worth knowing that any expense your company incurs for the running ‘wholly, exclusively and necessarily’ of the business can be deducted from your company’s profits, before you pay tax. Expenses include:

  • Goods bought for resale
  • Purchase of materials
  • Freelancer costs
  • Salaries of all employees
  • Employers’ National Insurance Contributions (NICs)
  • Employer pension contributions
  • Business insurance
  • Business-related travel and accommodation
  • Office running costs
  • Accountancy costs

There are other expenses, but these are the main ones. Sadly, equipment and plant you buy and keep for the business cannot be claimed, as these are considered capital assets.

Once you’ve looked at how much you earn each month and have considered expenses and any tax reliefs you may be entitled to, you can then estimate the corporation tax amount you need to save for each month at the current tax rate.

Self-employed, sole traders and partners in a partnership

If you’re self-employed you’re required to pay your Self Assessment tax bill, Income Tax and National Insurance Contributions on your business profits, after deductions for expenses. You need to know these figures before you can start saving for your tax bill.

Our advice? Use HMRC’s self-employed ready reckoner to help you budget for your Self Assessment tax bill. (Yup, they’re trying to help you pay your taxes!)

Here you simply place in your estimated weekly or monthly profit to get an idea of how much Income Tax, Class 2 and Class 4 National Insurance you’ll be asked to pay. However, if you need to make payments on account, these are not included in this tool. The tool also assumes you have no other taxable income and receive the standard personal allowance.

  1. Accounts

Next, open two current accounts. One will be for income, the other for expenses.

  1. Savings accounts

Once you’ve opened the current accounts, you also need to open two savings accounts: one you will use to save for your tax, the other for your reserves.

  1. Expenses

How much do your expenses cost you each month? Work out every cost to your business from business rent and staff payments to stationary bills and water bills. Now you can calculate how much income you need to move into your expenses account to ensure your monthly bills are paid.

  1. Tax

Go back to your estimated figures you worked out for your tax and now calculate how much income needs to be moved into your tax savings account each month to ensure there’s enough to pay HMRC.

  1. Reserves

Whatever is left, gets moved into your reserves account to pay your dividends. This can also be your pot for expensive equipment required in the future and other big purchases.

 

Ta-dah! Saving for tax made simple! For those of you who are up-to-date with your accounts, payments can be made twice a month, but this is only possible if you have good record keeping and a great bookkeeper.

If, after reading this article, you’re still not entirely sure how to begin the process of sensibly saving each month, just ring Cloudit Bookkeeping!  We’re here to make sure businesses not only succeed but thrive!

Don’t let tax get you down; there are always ways to help businesses cope and a great bookkeeper is one of the best ways of helping yourself. Please call and we will assist in helping you remove the fear of future tax payments.